By Lingling Wei and Craig Karmin at The Wall Street Journal
At least three big Chinese companies are competing to win Beijing’s approval to bid forStarwood Hotels & Resorts Worldwide Inc., according to people with knowledge of the discussions, setting the stage for what could be the largest-ever Chinese takeover of a U.S. company.
Lodging giant Shanghai Jin Jiang International Hotels (Group) Co., along with HNA Group, parent of Hainan Airlines Co. and sovereign-wealth fund China Investment Corp., each has presented a separate proposal to the Chinese government over the past two months, these people said.
Given the potential size of the deal, the Chinese government wants only one domestic company to make a bid, the people said, so that Chinese companies don’t drive up the price by bidding against one another. Beijing is expected in the next few weeks to make its selection.
Starwood has been running a strategic review process for months and listening to merger bids from companies around the globe, said people familiar with the process. A Starwood spokeswoman declined to comment.
The Stamford, Conn., hotel operator controls brands like Westin, W Hotels and St. Regis and has more than 1,200 properties world-wide. In April, Starwood’s board indicated it would be open to a sale amid concerns it wasn’t growing as fast as rival hotel operators.
It isn’t clear how much the Chinese companies might be willing to pay for Starwood, but people familiar with the discussions said any bid would come at a premium to Starwood’s market value, which was nearly $12 billion at the start of Tuesday.
Shares of Starwood rose 9.1% Tuesday to 74.81, the stock’s largest single-day gain since 2009, after news of Chinese interest.
A deal would represent the largest-ever acquisition of a U.S. company by a Chinese entity, according to data tracker Dealogic. In 2007, CIC paid $5.6 billion for a 9.9% stake inMorgan Stanley, currently the largest dollar investment from China in a U.S. company.
A spokesman for Jin Jiang, which has four publicly listed subsidiaries, said “at the moment, the listed part of the company has no intention to acquire Starwood.” He declined to comment further. A spokeswoman for HNA said she has “no relevant information.” A representative of CIC didn’t respond to a request for comment.
The talks over Starwood are the latest sign of Chinese companies’ global ambitions in the hospitality sector. Anbang Insurance Group Co. this year paid nearly $2 billion for the Waldorf-Astoria hotel on New York’s Park Avenue, a record sales price for a U.S. hotel.Another Chinese insurer paid about $230 million, or more than $2 million a room, for New York’s Baccarat Hotel. That was an all-time high on a per-room basis.
Beijing might opt to discourage any Chinese bid for Starwood if the price is seen as too high, the people said. Of the three Chinese firms interested in the U.S. hotel company, Jin Jiang and CIC are state controlled, while HNA is partly owned by the government. What’s more, any or all of the Chinese companies could decide not to follow through with a bid.
The jockeying illustrates a unique aspect of the Chinese deal-making process. As Chinese companies increasingly flex their muscles on the world stage, authorities including the Commerce Ministry and the National Development and Reform Commission, the top state-planning agency, often want to make sure they don’t bid against each other in big deals and drive up the price paid by the eventual winner. The government also must approve major corporate investments abroad.
The long process could potentially make Chinese firms miss the best time to cut a deal, Chinese executives said.
Starwood has its own challenges. Chief Executive Frits van Paasschen left in February after the board lost confidence in his ability to grow the company, say people familiar with the board’s thinking. In April, Starwood said it had hired investment bank Lazard to help the company explore strategic alternatives including a possible sale or merger.
Since then, the company has continued to sell hotel properties, and it is in advanced talks to sell its timeshare business for at least $1 billion, according to people familiar with the company.
Despite the prominence of its higher-end and lifestyle brands, Starwood has struggled to find a winning formula in the increasingly lucrative limited-service-hotel segment. Its Sheraton brand, which accounts for more than 40% of Starwood’s room total, has lost ground to rivals and Starwood is trying to reinvigorate the brand.
While people familiar with the sale process said over a dozen companies have inquired about a possible combination with Starwood, it is unclear how many have made formal offers. That could leave the field open for a Chinese bidder.
The Committee on Foreign Investment in the U.S., whose members include secretaries of Treasury, Homeland Security and Defense, likely would have to approve any Chinese deal for Starwood. Lawyers said an acquisition by a state-owned Chinese company could draw extra scrutiny.
“Anything involving Russia or China and remotely connected with national security will draw a closer look,” said Joel Brenner, a lawyer specializing in national security issues.
The committee approved Hilton Worldwide Holdings Inc.’s sale of the Waldorf to the Chinese insurer, but during a visit last month President Barack Obama broke with a longstanding tradition of presidents staying at the Waldorf by opting for another Manhattan hotel.